Premium
Optimal mixed ownership: A contract view
Author(s) -
Wang Zheng,
Heywood John S.,
Ye Guangliang
Publication year - 2020
Publication title -
economics of transition and institutional change
Language(s) - English
Resource type - Journals
eISSN - 2577-6983
pISSN - 2577-6975
DOI - 10.1111/ecot.12237
Subject(s) - mixed economy , government (linguistics) , welfare , principal (computer security) , business , extension (predicate logic) , carry (investment) , microeconomics , economics , law and economics , market economy , labour economics , finance , computer science , linguistics , philosophy , programming language , operating system
Abstract This paper reconsiders the classic issue of whether provision of a public good should be undertaken directly by the government or through private contracting (Hart, Andrei, & Robert, 1997). We consider a third alternative of provision by a mixed ownership firm. We assume that this mixed ownership firm provides the government principal with a combination of the contracting problems it faces in the two more extreme alternatives. We show that full government ownership and provision is never optimal and that frequently the mixed firm undertakes intermediate investments that also prove welfare superior to fully private contracting. These results carry over to an extension in which the agent is presumed to be a foreigner.